Argentina: Why Did China Suspend $6.5 Billion Currency Swap Deal?

China has reportedly suspended a $6.5 billion currency swap agreement with Argentina, marking a significant diplomatic move that comes just 10 days into the presidency of Javier Milei, Yahoo! Finance noted.

The freeze is expected to continue until President Milei demonstrates a clear intention to engage with Beijing, according to reports from Argentine media.

The suspension of the Argentina-China currency swap agreement underscores the challenges Milei faces in reshaping diplomatic ties, a key promise during his election campaign.

The spokesperson for the Chinese embassy in Argentina, Zhicheng Xie, and Chinese Foreign Ministry spokesperson Wang Wenbin in Beijing declined to confirm or deny the reports, emphasizing China's commitment to cooperation based on equality and mutual benefit.

China Not Happy with Argentina's Plan to Purchase US-Made F-16 Fighters

The reported suspension followed Argentina's potential purchase of used F-16 fighters from Denmark, originally manufactured in the US, a deal yet to be officially announced.

Argentina, prior to Milei's election, was engaged in discussions to procure new Chinese JF-17 Thunder jets, a move that reportedly raised concerns in Washington, aiming to curtail Beijing's influence in South America.

In response, the United States not only approved the sale of F-16s to Argentina but also committed to providing weapons, training, logistical support, and spare parts for the jets.

Reports from Infobae indicated that China was awaiting a "clear gesture of goodwill or friendship" from Argentina before resuming a currency swap.

The news outlet also highlighted that China's ambassador to Argentina, Wang Wei, had been summoned back to Beijing to assess Milei's plans and his approach to projects prioritized by Chinese President Xi Jinping.

Before Javier Milei's election, Argentina was in talks to acquire new Chinese JF-17 Thunder jets, which reportedly displeased Washington's attempts to limit Beijing's influence in South America.

The recent move by the US to approve the sale of F-16s to Argentina, along with additional support, signals a shift in geopolitical dynamics.

China is said to be waiting for "a clear gesture of goodwill or friendship" from Argentina to resume the currency swap.

The news reports suggest that China's ambassador to Argentina, Wang Wei, has been recalled to Beijing to discuss Milei's plans and approach to projects prioritized by President Xi.

The Argentina-China currency swap agreement, renewed annually since 2009, holds immense importance for Buenos Aires, particularly due to its negative holdings of international dollar reserves, per the Bangkok Post.

Argentina, known for its history of defaulting on international debt, has relied on such agreements to manage its credit options.

The $6.5 billion funds were initially promised by China in October to then-Argentine economic minister Sergio Massa, aiming to support imports and meet obligations to the International Monetary Fund (IMF).

Despite Javier Milei's anti-China rhetoric during the campaign, after his inauguration on December 10, he sought the continuation of the agreement with Chinese President Xi Jinping.

Debt-Ridden Argentina Faces Funding Crisis

The Argentina-China currency swap agreement suspension puts debt-ridden Argentina in a challenging position, leaving it without ready access to funding to meet promises to pay creditors, including the IMF, where Argentina owes a world-record $43 billion, according to People's World.

In November, Javier Milei, a strong advocate of free-market principles, won with 55% of the vote in Argentina, appealing to a population desperate for change from the established political order.

With a significant following on TikTok and TV, Milei promoted an agenda of drastic spending cuts and the elimination of the Argentine peso as a solution to the economic crisis.

The election reflected widespread desperation, driven by high poverty rates, especially among children, and inflation exceeding 140%.

Over the past two decades, Argentina faced cyclical crises despite attempts by various governments to negotiate with creditors, including a 2018 IMF loan with conditions for spending cuts.

The country's recent crisis was exacerbated by a severe drought since 2019, the worst in over 60 years, impacting farmers and causing a significant drop in harvests, notably in soybean production.

Dependent on agricultural exports, Argentina faced a ballooning trade deficit, falling tax revenues, and increased government spending.

To cope, the government borrowed heavily, and the central bank issued more money, exacerbated by the likely influence of climate change on the drought's severity.

This article is owned by Latin Post.

Written by: Bert Hoover

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